Principles of Financial Accounting.
24th Edition
ISBN: 9781260158601
Author: Wild
Publisher: MCG
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Textbook Question
Chapter 6, Problem 8AP
Periodic: Income comparisons and cost flows A1 P3
QP Corp. sold 4,000 units of its product at $50 per unit during the year and incurred operating expenses of $5 per unit in selling the units. It began the year with 700 units in inventory and made successive purchases of its product as follows.
| Jan. 1 | Beginning inventory | 700 units @ $18.00 per unit |
| Feb. 20 | Purchase | 1,700 units @ $19.00 per unit |
| May 16 | Purchase | 800 units (a) $20.00 per unit |
| Oct. 3 | Purchase | 500 units @ $21.00 per unit |
| Dec. 11 | Purchase Total | 2,300 units @ $22.00 per unit 6,000 units |
Required
1. Prepare comparative income statements similar to Exhibit 6.8 for the three inventory costing methods of FIFO, LIFO, and weighted average. (Round all amounts to cents.) Include a detailed cost of goods sold section as part of each statement. The company uses a periodic inventory system, and its income tax rate is 40%.
2. How would the financial results from using the three alternative inventory costing methods change if the company had been experiencing declining costs in its purchases of inventory?
3. What advantages and disadvantages are offered by using (a) LIFO and (b) FIFO? Assume the continuing trend of increasing costs.
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Cost Flow Methods
The following three identical units of Item P401C are purchased during April:
Item Beta
Units
Cost
April 2
Purchase
1
$100
15
Purchase
1
120
20
Purchase
1
140
Total
3
$360
Average cost per unit
$120
($360 ÷ 3 units)
Assume that one unit is sold on April 27 for $300.
Determine the gross profit for April and ending inventory on April 30 using the (a) first-in, first-out (FIFO); (b) last-in, first-out (LIFO); and (c) weighted average cost method.
Gross Profit
Ending Inventory
a. First-in, first-out (FIFO)
$
$
b. Last-in, first-out (LIFO)
$
$
c. Weighted average cost
$
$
Cost Flow Methods
The following three identical units of Item P401C are purchased during April:
Item Beta
Units
Cost
April 2
Purchase
1
$100
15
Purchase
1
120
20
Purchase
1
140
Total
3
$360
Average cost per unit
$120
($360 ÷ 3 units)
Assume that one unit is sold on April 27 for $300.
Determine the gross profit for April and ending inventory on April 30 using the (a) first-in, first-out (FIFO); (b) last-in, first-out (LIFO); and (c) weighted average cost method.
Gross Profit
Ending Inventory
a. First-in, first-out (FIFO)
$fill in the blank 1
$fill in the blank 2
b. Last-in, first-out (LIFO)
$fill in the blank 3
$fill in the blank 4
c. Weighted average cost
$fill in the blank 5
$fill in the blank 6
Cost Flow Methods
The following three identical units of Item K113 are purchased during April:
Cost
April 2
April 15
April 20
Total
Item Beta
a. First-in, first-out (FIFO)
b. Last-in, first-out (LIFO)
c. Weighted average cost
Purchase
Purchase
Purchase
Units
1
1
1
3
$
$504
Average cost per unit
$168 ($504 + 3 units)
Assume that one unit is sold on April 27 for $210. Determine the gross profit for April and ending inventory on April 30 using the (a) first-in, first-out (FIFO); (b) last-in,
first-out (LIFO); and (c) weighted average cost method.
Gross Profit
$165
168
171
Ending Inventory
$
Chapter 6 Solutions
Principles of Financial Accounting.
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